Finding Hedge in Bitcoin in Recession
Despite all the talk about impending or ongoing economic crisis caused by the COVID-19 global pandemic, Bitcoin seems to be doing fine, outperforming even gold and the most popular stocks. What could be the reason? Could Bitcoin really be the answer to the inflation and economic challenges ahead? ChangeHero takes a look at some Bitcoin stories and statistics, and tries to answer these questions. Find the practical advice on how to buy Bitcoin instantly in this article, too!
What is Bitcoin and how did it start?
Bitcoin is one of the best known and most appreciated cryptocurrency — a type of digital currency that was not issued by any central authority, but is secured and backed by computation. The development of Bitcoin started in 2008, just in time for a major economic crisis, caused by the US housing bubble crisis, and its ledger started in January 2009. In the coinbase of the block #000000 (genesis block) was a message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” It’s generally understood as a statement regarding the purpose of Bitcoin to act as a means of payment immune to centralized interference and faulty monetary policies. Even to this day, the politically-charged narrative of Bitcoin in recessions being the tool that can act as a hedge is going strong.
Read more about Bitcoin in ChangeHero’s Guide to Bitcoin for Beginners!
Bitcoin in Recession of 2008–2010
The 2008 housing crisis in America caused a lasting chain reaction that led to a global economic crisis that was affecting other countries for years. By 2010, the Federal Government declared the recession in the US to be over, but the consequences did not cease at once.
Simultaneously to the timeline of the crisis, Bitcoin has had barely any influence on the economy aside from the ideology and concept. In addition, prior to 2011 there was barely any economic activity with BTC. However, in the consequent years and the crises that started because of these events, Bitcoin managed to make a reputation for itself, as more Bitcoin stories started to emerge:
In Spain and Cyprus of 2013, when Europe was hit with a debt crisis and the banks cut citizens’ deposits to scrape some bailout, interest in Bitcoin soared tenfold.
Bitcoin in Recessions and Crisis-Hit Economies
In addition to the Cypriot financial crisis that sparked interest in Bitcoin in 2013, there are more cases of people turning to the digital currency when the trust in their government is at its lowest.
In 2017, Zimbabwe was going through a coup-d-etat which was a culmination of a years-long stagnation and crisis. By that time the country did not have its own currency, as it collapsed as a result of hyperinflation years ago. As the military was overthrowing the government, the volumes and the price of Bitcoin on a local exchange soared. Demand for bitcoin in Zimbabwe has surged amid a shortage of hard currency.
One of the most cited examples of an economy hit by hyperinflation and sanctions and using Bitcoin and blockchain to combat this is Venezuela. According to a recent report, Venezuela is the third largest crypto user among the world’s nations. Surprisingly, this has nothing to do with the fact that the country has crypto regulated mining pools and exchanges and has issued a national cryptocurrency PETRO: average value of the transactions going through these exchanges hints that these are more often used to dodge the US-imposed sanctions by the wealthy few.
A more representative metric in terms of adoption would be the P2P trading volume, which has been growing for months there.
Bitcoin in Recession Caused by the Pandemic
In the past few years, the Bitcoin community has closely followed the rise of an institutional interest in investing BTC. On the one hand, it means that Bitcoin is being recognized as a legitimate store of value and experiences a surge in capitalization. In the same time frame, as more investors started to come to Bitcoin, the narrative shifted from Bitcoin being magic Internet money to it being a safe haven asset to hedge against inflation. On the other hand, however, it also means there is growing correlation with the stock market, and in March of this year we got to reap the fruits of such adoption.
Let’s take the S&P 500 index for example. This is a cumulative index for the top-500 capitalized American companies. While there is no strict correlation between BTC and this index, we can clearly see that the growing uncertainty and the shutdowns starting around the world in February and March affected both assets negatively. Thanks to the efforts of the US Federal Reserve System, the stock market did not collapse, but at the same time about 20% more of total USD supply has entered the economy in a very short span of time:
The USD supply chart, with the 2020 newly “printed” money, looks parabolic, and the spike in this year accounts for a sudden increase in it, accelerating the possible onset of devaluation.
The narrative shift that in recession Bitcoin can act as a hedge has certainly had certain results. Americans who received stimulus checks, which also consist of the money newly entering the economy, reportedly put it into BTC. Particularly, Binance and Coinbase reported an uptick in deposits equal to the sum of a stimulus check in April. The P2P trading volumes across the world have been growing as well.
Bitcoin Stories: Most Notable Investments
Even in the direst of crises, as the history shows, investment opportunities don’t cease to appear. Bitcoin has recovered from the March crash by May and has been growing since. Let’s see who decided to use this opportunity to invest in Bitcoin in recession.
One of the recent notable corporate investments in Bitcoin includes Square. With Jack Dorsey, famous for his BTC maximalism, in the lead, it was a matter of time. The notable thing about this investment is not even the size — $50 million — or the choice of asset, but the Square’s stance: they released a statement on this move encouraging other investors to do the same. This whitepaper might not be of too much use to a retail investor or to an ordinary person, so read the article until the end for tips on how to buy Bitcoin instantly!
Other noteworthy BTC investments of late include Microstrategy’s $450 million dollar and Stone Ridge $114 million BTC purchases. Both of these were made with the same idea in mind: to hedge against inflation of cash supplies. “This investment reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash,” Microstrategy CEO Michael J. Saylor explained.
Grayscale Investments, a company that specializes in digital currency investment offers, continues to see high demand from their clients. In 2019, their user base expanded by 24% and inflows from institutions increased to 71% (from 66% before). Just the other day, in a Q3 report, they stated that for the third quarter in a row, there is a steady increase in demand in 2020, as well. Grayscale Investments is far from the only player in the digital currency investment niche, as Nickel and Galaxy Digital are competing with each other, and the latter two report an increase in demand as well.
Crypto Twitter on Bitcoin in Recession
Three Arrows Capital founder Su Zhu half-jokingly suggested that there should be an exchange-traded fund of the companies that own Bitcoin, especially now that there seems to be a growing number of those. Having an index for crypto companies would certainly be an interesting way to track the market and expose it to more markets, even in theory.
In this May tweet, as Bitcoin recovered to February levels after the March crash, best-selling author Robert Kiyosaki once again urged his followers to invest in safe haven assets, in which he, of course, included BTC. He even went as far as basically saying that getting gold, silver and Bitcoin in recession is the only way to save oneself. Minus the caps, typos and strong feelings, a quite reasonable statement.
Another fan rooting for Bitcoin in recession is Tyler Winklevoss, one of the Gemini exchange founding twins and one of the first Bitcoin millionaires. In this simple infographic, he tries to explain how BTC is better than gold “by an order of magnitude or 10X better.” The facts that there is a fixed supply of BTC and it’s infinitely more portable than gold are certainly true.
How to buy Bitcoin instantly on ChangeHero?
If you did enough research and are ready to buy some Bitcoin, ChangeHero can be the answer to how to buy Bitcoin instantly. You wouldn’t need to search for the offer or make a deposit, because the process of buying BTC on our website is rather quick and easy:
Pick your country of residence and currency, enter the sum of purchase. You will be provided with an estimate immediately;
- In the next step, check the sums, currencies and rate again. You may be asked to provide an email or phone number for verification;
- If this is your first-time purchase, create an account with our partner and go through a simple automated KYC procedure. It will take only a few minutes and won’t be needed if you use the same credentials in the next purchases;
- Provide your BTC address in the next step. Make sure to double-check it, as the transactions on the blockchain are irreversible;
- In the next step, make the payment with your card as instructed. When you receive a message, your purchase is complete and the Bitcoin will soon arrive at your address!
If you already own Bitcoin, on ChangeHero you can exchange it with dozens of other cryptocurrencies at the best rates on the market, without signing up and in mere minutes. Make sure to check it out, too!
Conclusion
More and more investors turn to Bitcoin in recession. Even large and influential companies share their Bitcoin stories and consider using it for hedging. One of the possible scenarios is the increasing number signifying the price of Bitcoin, at one point, will not mean that there is more capital in BTC. Rather, as inflating fiat currencies will be depreciating against 21 million Bitcoins, 1 BTC will be worth 1 BTC.
If you enjoyed the article, make sure to subscribe to ChangeHero’s social media accounts not to miss out on more content from our team: Twitter, Facebook, Reddit and Telegram.
